Potential Problems in Analyzing Foreign Financial Statements
Often financial statements can be _______ to allow for comparisons across countries.
reformatted
With the increased use of _____ across countries, the problems associated with accounting diversity that once existed have become smaller
IFRS
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A significant number of _____ find that differences in accounting practices across countries hinder their financial analysis
investors
Much of financial analysis is conducted through the use of ____ calculated from the financial statements.
ratios
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In addition to translating the language, some foreign companies will also translate the _____ of their financial statements
currency
Differences in accounting principles for ______ and _____ assets, liabilities, revenues, and expenses can have a significant impact on the amounts reported by companies in their financial statements.
recognizing and measuring
Under ______ indirect costs related to inventory are treated as operating expenses in the period in which they are incurred
Local GAAP
________-_______ involves combining the results of accounting analysis and financial analysis, along with an analysis of the business environment and company strategy, to forecast future financial statement information.
Prospective analysis
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Even if a foreign company has translated its financial statements into English for the convenience of English-speaking analysts, confusion can arise because of the _______ used.
terminology
differences in accounting principles can have a significant impact on the amount of what?
income and equity reported by a company
under ______, these costs are treated as product costs and are expensed as cost of goods sold when the inventory is sold.
US GAAP
______-_______ is the evaluation of a company’s business environment, strategies, financial position, and performance to be able to make decisions with respect to that company.
Business analysis
What is the average number of days between year-end and the date the auditors sign the audit report (and the annual report is ready to publish) for Canada?
31-60 days
Another mechanism for dealing with accounting differences is to use a ______-___-______ from which many accounting issues are removed.
measure of earnings
Companies interested in attracting interest _____ have an incentive to provide more disclosure and issue their financial statements on a more timely basis
globally
Financial statement analysis consists of the following steps:
1. Accounting analysis.
2. Financial analysis.
3. Prospective analysis.
Name two possible solutions to the language translation problem:
1. Hire a professional translator to translate the annual report
2. Develop a multilingual capability, possibly using a team approach in which each member of the team is fluent in a different foreign language.
How is OIBD (operating income before depreciation) measured?
OIBD is measured by adding the depreciation included in operating expenses back to operating income.
Why should analysts be careful in interpreting ratios calculated for foreign companies?
Financial ratios can differ across countries because of differences in business and economic environments. An analyst will need to have an understanding of the accounting and business environments of the countries whose companies they wish to analyze.
Financial analysis involves the use of adjusted fi nancial statement information to conduct:
1. Cash flow analysis
2. Profitability analysis
3. Risk analysis